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CDL steps up diversification plan

[SINGAPORE] Faced with challenging headwinds in the Singapore property landscape, City Developments Ltd (CDL) will focus on new geographies and products.

It is actively looking at Japan and Australia and hopes to establish platforms in these markets by year end. In addition, CDL is seeking to develop fund management products, its top brass said yesterday as the group posted a 32.8 per cent drop in second-quarter net earnings to S$137.86 million. First-half net profit also fell 24.9 per cent to S$257.53 million.

On fund management, where the group lags behind its Singapore peers such as CapitaLand and Keppel Land, CDL's strategy will be to initially monetise some of its existing assets. This would build a track record, giving for instance fixed returns to investors while providing long-term capital appreciation. In the longer run, CDL will not rule out a "discretionary" model, as is adopted by many private-equity outfits, of raising cash from investors first before purchasing assets.

"If you look at our competitors, many of them have multi-billion-dollar funds management businesses. Subject to market conditions, I don't see a reason why at some point, a five to 10-year horizon, we would not be targeting that type of business," said Grant Kelley, who was appointed CEO of the company earlier this year. He was formerly from Apollo Global Management and Colony Capital.

Kwek Leng Beng, CDL's executive chairman, said the group has not taken full advantage of its hotel portfolio, held under its London-listed subsidiary Millennium & Copthorne Hotels (M&C). He floated some possibilities. "One day if it is prudent and viable, why don't we throw all our hotels into a Reit (real estate investment trust) and make this the biggest Reit ever in Singapore? As another example, why don't we get all our provincial hotels in the US plus UK, put them into a Reit? That is another model."

As for expanding Down Under and in Japan, CDL's strategy is likely to be dominated by hotels, commercial and residential - the three asset classes it is best at in the Singapore market. "We are actively looking at a number of opportunities currently ... In the next 12 months, we hope we'll have some concrete and exciting investments that will be consummated," said Mr Kelley, declining to give details.

Late last month, Australian Financial Review reported that CDL and Australia's Stockland Group are considering bidding for Leighton Holdings' US$7 billion residential and commercial property portfolio. The Leighton Properties business is expected to fetch up to A$500 million (S$580 million), according to the report.

At yesterday's briefing, CDL also gave an update of the headway it has made in other overseas markets: China and UK. It has picked up six freehold properties in UK since last year for £157 million (S$326 million): two in Knightsbridge and one each in Chelsea, Belgravia, Croydon and Reading. The intention is to reposition them predominantly as residential projects to tap the undersupply in the London housing market.

Said Mr Kwek: "I personally believe that now with Middle East in bad shape, more and more funds and rich individuals will park their money and buy something" in London.

Later this year, the group could launch its first major China project - Eling Residences in Chongqing.

In Singapore. the group may release a 124-unit freehold condo, New Futura, on Leonie Hill Road in Singapore in the second half of this year, subject to market conditions.

One-fifth of the 500,000 sq ft of offices at its South Beach Tower in Singapore has been committed. Besides Rabobank, tenants clinched include De Lage Landen, TMF Group and Bain & Company; advanced negotiations are going on with a few more major potential tenants. The 34-storey tower is expected to be completed by year-end and CDL hopes to pace out leasing activity to ride on rising office rents.

The drop in CDL's Q2 and H1 bottom lines was due to the absence of significant divestment gains which had boosted the same year-ago periods. In Q2 2013, CDL sold 100G Pasir Panjang, after selling strata units in Citimac Industrial Complex, Elite Industrial Buildings 1 and II in Q1 2013.

CDL's revenue rose 5.9 per cent to S$861.15 million in Q2 and edged up 0.4 per cent in H1 to S$1.595 billion. Shareholders will receive a special interim dividend of four cents per share, down from eight cents in H1 last year.

Earnings per share fell to 14.5 Singapore cents in Q2 2014 from 21.8 cents in Q2 last year. The counter ended 27 cents lower at S$9.78 yesterday. CDL released its results before the stock market opened.